Standing Committee B

[Mr. James Cran in the Chair]

Pensions Bill

Nigel Waterson: On a point of order, Mr. Cran. I wish to refer to two issues on which, quite unwittingly, Ministers may have misled the Committee at our previous sitting. We had a lengthy discussion about prospects for compensating the 60,000 workers who have already lost their pension rights. Members of the Committee may have read in The Times on 27 March that the Government have commissioned a study from the Association of Corporate Trustees on the size of the problem. It has been asked to assess how much a bail-out could cost. That unaccountably slipped Ministers' minds during our detailed discussion about such matters. Surely they would have considered that it was something of more than passing interest to the Committee.
 At our sitting last Thursday, I pressed the Minister about the priority order, to which he responded: 
''Our proposals . . . which we hope to introduce to the Committee as soon as possible after Easter, will be part of the Bill.—[Official Report, Standing Committee B, 25 March 2004; c. 459.]
 That has caused some confusion and consternation among those in the know and I understand that the hon. Gentleman may have made an error. Now might be a good opportunity for him to correct the position.

James Cran: I am perfectly happy with the hon. Gentleman's point of order, although he and the Committee will understand that it has nothing to do with me, but doubtless others whom it relates to will respond at the appropriate time if they wish to do so.Clause 121 Duty to assume responsibility following reconsideration

Clause 121 - Duty to assume responsibility

Amendment made: No. 467, in 
clause 121, page 76, line 24, at end insert— 
 '(2A) Where the Board makes a determination for the purposes of subsection (2), it must issue a determination notice and give a copy of that notice to— 
 (a) the trustees or managers of the scheme, and 
 (b) the Regulator. 
 (2B) In subsection (2A) ''determination notice'' means a notice which is in the prescribed form and contains such information about the determination as may be prescribed.'.—[Mr. Pond.]
 Question proposed, That the clause, as amended, stand part of the Bill.

Nigel Waterson: I hope that my point of order will produce some response from the ministerial team.
 During a busy weekend in the pensions press, it emerged that there was an apparent loophole in this part of the Bill. There are two schools of thought. The first is that the loophole was unintentional, the consequence of an oversight by the Department for 
 Work and Pensions. The more colourful theory is that the loophole is a clever way of dealing with the points that I, the hon. Member for Cardiff, West (Kevin Brennan) and others have made about compensating those who have already lost out because of problems with their pension schemes. 
 Senior pension lawyers who specialise in such matters say that the way in which this part of the Bill is drafted could trigger the collapse of hundreds of schemes within days of the launch of the pension protection fund, and that 
''Any trustees of company pension schemes where the employer had already collapsed might be delaying the liquidation of the scheme until members could qualify for payments from the PPF''.
 Mr. Robin Ellison of the solicitors' firm, Pinsents, said: 
''It will be very interesting to see just how many schemes collapse within the first three days. We expect to see a rush of collapses. What we don't know is how many. I suspect it will be in the low hundreds.''
 Oh, so that is all right then. He went on to say that trustees might have no option but to 
''keep the funds running. If you're a trustee and you begin wind-up between now and next April, you could be accused of being in breach of trust.''
 Mr. Giles Orton of Eversheds said that he could not believe that Government officials were not 
''fully aware, right at the start, of the significance of wording the Bill in this way. Access to the PPF depends not on the date that a company goes into receivership or liquidation but the date the pension starts wind-up. This is a crucial difference.''
 The lawyers point out that some employers would go to great lengths to buy time and avoid damage being done to their reputation of being seen to walk away from a pension scheme. They believe that some people, particularly overseas owners of ailing United Kingdom subsidiaries, might also be waiting for the launch of the PPF to put the scheme into liquidation. Another way round such a problem is apparently management buy-outs. According to Mr. Orton, the management are told, ''We will bung you a reward to keep it going as long as you can. By the time the inevitable happens, the PPF will be up and running.'' It buys them time. 
 Last week, it was the actuaries who fired a torpedo at this ailing ship; today, it is the pension lawyers. I would be fascinated to hear what Ministers have to say about the latest large problem that has opened up in their Bill.

Chris Pond: What a delight it is, Mr. Cran, that you are seeing us through our proceedings on this wonderful spring morning.
 I shall first deal with the specific point made by the hon. Member for Eastbourne (Mr. Waterson) about the apparent loophole that he thinks has been discovered by the weekend press. I reassure the Committee that there is no loophole. The key is that wind-up must occur after April 2005; insolvencies that take place before that date will not qualify. Indeed, the Committee passed an amendment to clause 99 last week to that effect, so I hope that the hon. Gentleman is reassured. 
 I remind the Committee that, towards the end of last week, we were discussing the entry rules to the PPF, assessment periods and so on—I am sure that hon. Members will have thought of nothing else over the weekend. They will remember vividly that clause 120, which we debated on Thursday, provided for schemes to apply for reconsideration if the PPF has determined that schemes have sufficient assets to buy out the PPF level of benefits, and therefore imposes a requirement to wind up outside the PPF. 
 Applications for reconsideration must be submitted by the trustees or managers of the scheme. Such applications must, first, contain a quotation for one or more annuities from one or more insurers willing to accept payment in respect of the members that would provide benefits to those members; and, secondly, a written auditor's valuation of the assets, excluding assets relating to money purchase benefits under the scheme. 
 Clause 121 provides that if the protected benefits quotation and asset valuation submitted by a scheme during the reconsideration period confirms that the scheme is not able to buy out benefits for members that are at least equal to the level of the protected liabilities, the board must take the scheme into the PPF. The board may obtain its own valuation of the assets of the scheme as at the reconsideration date. That valuation will have the same effect as an auditor's valuation. Audited scheme accounts, for the purposes of the clause, means accounts audited by the scheme's auditor, and obtained by the trustees or managers of the scheme in accordance with section 41 of the Pensions Act 1995. 
 The clause is crucial in enabling the board to assume responsibility for a scheme, following a decision by it having received an application for a reconsideration. 
 Question put and agreed to. 
 Clause 121, as amended, ordered to stand part of the Bill.

Clause 122 - Transfer notice

Amendments made: No. 468, in 
clause 122, page 77, line 4, leave out 
 'or 121' and insert', 121 or [duty to assume responsibility for closed schemes]'.
 No. 469, in 
clause 122, page 77, line 7, at end insert— 
 '(3A) In a case to which section [duty to assume responsibility for closed schemes] applies, a transfer notice may not be given until the valuation obtained under subsection (3) of that section is binding.'.—[Malcolm Wicks.]
 Clause 122, as amended, ordered to stand part of the Bill.

Clause 123 - Effect of Board assuming responsibility for a scheme

Nigel Waterson: I beg to move amendment No. 411, in
clause 123, page 77, line 42, at end insert— 
 '(7) The trustees or managers of such a scheme shall be discharged from any further liabilities of whatsoever nature; and they will in addition receive an indemnity and hold harmless agreement from the Board.'.
 The clause sets out the effect of the board's assuming responsibility for a scheme. It is important to realise that the board does not take over as the trustee of a pension scheme—it is a crucial distinction. Instead, all the property of the scheme is transferred to the board. Under subsection (2), the scheme is to be treated as having been wound up. It seems to us, therefore, that it needs to be clear to the trustees that once they no longer have any assets under their control they will be free from further liabilities. Subsection (2)(b) contains a general discharge from their pension obligations, and pension obligations are defined in subsection (4). 
 I am told, however, that there may be other circumstances in which trustees will remain liable for obligations that they have entered into, even if those involve assets that have been transferred to the board. For example, if they have entered into a lease they might still be personally liable as trustees under the lease covenants, even though the board might also become liable under subsection (2)(a). We think that it should be made clear that those obligations would disappear once the assets were taken over. It may also be worth while to make it clear that no further claims can be brought against the trustees before the pensions ombudsman. Ministers may want to consider that; perhaps we shall consider the possibility later in the Bill. 
 I included in amendment No. 411 a requirement for the board to give the trustees an indemnity and hold harmless agreement. I can see no good reason for the trustees, having relinquished, or being advised to relinquish, their responsibilities, not to be given a very wide indemnity by the PPF.

Chris Pond: The hon. Gentleman makes an important and relevant point. I am pleased to reassure him and the Committee that his concerns have already been dealt with in the provisions.
 I do not think that there is anything between us on the issue of trustees' further liabilities. It has been made clear that once the board has taken over responsibility, it has responsibility. The clause provides that, where a transfer notice is given to the trustees or managers of a scheme, the effect of the transfer notice is to transfer all the property, rights and liabilities of the scheme to the board. The trustees or managers of the scheme are discharged from their obligations to the scheme and the PPF board is required to pay compensation to scheme members on an ongoing basis. 
 The amendment, however, would allow the trustee or managers of a scheme to be discharged from any 
 liabilities whatsoever relating to the scheme, and enable them to receive an indemnity and not be held responsible by the board for any consequences of their actions prior to the taking effect of the transfer notice. 
 The effect of schedule 6 is that only rights and liabilities of an occupational pension scheme transfer to the PPF. That does not include any personal liability of the trustees or managers in respect of their acts or omissions prior to the date on which the transfer notice was given. Prudent trustees should as a matter of course have indemnity insurance in respect of personal liabilities. The amendment would therefore appear to be unnecessary and I hope that with that reassurance the hon. Gentleman will feel able to withdraw it.

Nigel Waterson: I am thoroughly reassured by that response to my amendment; it was impertinent of me even to table it. I therefore beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 123 ordered to stand part of the Bill.

Schedule 6 - Transfer of property, rights and liabilities to the Board

Nigel Waterson: I beg to move amendment No. 413, in
schedule 6, page 191, line 40, at end insert— 
 '2A Any claims for unfair dismissal or other breach of a contract of employment arising therefrom are payable in full by the Board.'
 The amendment concerns another small point, which I dare say the Under-Secretary is about to tell me is already dealt with in the Bill. I shall plunge on regardless. 
 Schedule 6 sets out in some detail the property rights and liabilities being transferred to the board under clause 123. Paragraph 2(2) provides for any contracts of employment to be immediately terminated. I understand that that would include anyone who had been directly employed by the trustees. I am advised that the schedule should make it clear that any claims for unfair dismissal or unlawful breach would be payable by the board, not the trustees. 
 I think that the point involved in this amendment is subtly different from the one dealt with under amendment No. 411. Some genuine concern seems to have arisen about it, and I should be interested to hear from the Under-Secretary why my amendment is inappropriate.

Chris Pond: While I am on a winning streak, may I suggest again to the hon. Gentleman that the legitimate points that he has raised have already been dealt with? He is right to say that any rights and liabilities under contracts of employment that would be transferred to the board are terminated and become void on the day preceding the day that the transfer notice is received by the trustees or managers of the scheme. That does not mean, of course, that any entitlement that people have in terms of unfair dismissal would no longer fall to the board.
 Schedule 6 also allows for any legal proceedings by or against the scheme or applications pending immediately before the transfer to be continued by or against the board. The amendment seeks to allow any claims for unfair dismissal or other breach of contract of employment arising from the issue of the transfer notice to be transferred to the board. However, subsection (2)(a) of clause 123 already provides for the property, rights and liabilities of a scheme to be transferred to the board once a transfer notice has been issued. Any contractual issues arising as a result of the transfer notice will be transferred to the board. Those would include outstanding employment issues. Under those circumstances, I hope that the hon. Gentleman will agree that the amendment is unnecessary.

Nigel Waterson: That serves me right. I am happy to accept the Minister's explanation, and I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Schedule 6 agreed to.

Clause 124 - The pension compensation provisions

Question proposed, That the clause stand part of the Bill.

Steve Webb: When we get to schedule 7, which will be enacted by clause 124, in a moment, I expect that we will have a long and detailed discussion of the details of compensation under the PPF. However, under the rubric of clause 124, which sets out the overall framework, it would be helpful to have a brief steer from the Minister on the philosophy underlying the detailed decisions that the Government have taken about the structure of compensation. Clause 124 says that periodic compensation and lump sum compensation should be payable. Immediately, that raises a question. Clearly, we are worried about people's pensions but clause 124 is not just about pensions—it mentions lump sums, and allows the payment of lump sums even when the scheme rules did not.
 There is a philosophical question about how far the PPF is trying to replace the pension arrangements that the scheme would otherwise have given, and how far it is trying to do something slightly different. For example, lump sums are payable under the clause even if they were not under the scheme, but in other cases, benefits that would have been payable under the scheme are not replicated in the PPF provisions. We will debate in detail the issue of unmarried partners and so on later, but a muddled approach underlies all our discussions about the benefit structure of the PPF. 
 The clause provides for a cap, but only for non-retired scheme members, not for retired scheme members. What is the philosophy behind that? If the schemes had run on, none of the caps would have applied. Why is there a cap in one place and not in another? Will the Minister clarify whether it is the Government's intention that the PPF will, as far as possible, try to give people what they would have got if 
 their employer had not gone to the wall with an underfunded scheme, or are the Government trying to create a kind of pseudo-pension with certain characteristics that they think schemes should have, such as lump sums, even if the scheme did not have them, but without unmarried partners' benefits, even if the scheme had them? Do the Government have a model of an ideal scheme? What is the thinking that will underlie our subsequent discussions on the detail of the schedule to follow?

Malcolm Wicks: With your permission, Mr. Cran, I will comment on two points that were raised by the hon. Member for Eastbourne earlier.

James Cran: Order. I am perfectly happy for you to refer to those two points, Mr. Wicks, but I would like to separate that from the current discussion. If the issue is germane to the clause, that is fine, but if it is not, let us find another way of talking about it.

Malcolm Wicks: I shall try to find another way of talking about it later; I was just trying to be helpful to the hon. Member for Eastbourne. For now, I will talk about clause 124 and touch briefly on the point made by the hon. Member for Northavon (Mr. Webb).
 Clause 124 sets out the pension compensation provisions relating to the new fund. The detail of the compensation rules is provided in schedule 7, section 123(2)(c), and will be set out in regulations under section 130. The purpose of schedule 7 is to detail the PPF compensation provisions relating to scheme members, their survivor—or in certain circumstances, dependants—when their defined benefit pension scheme or hybrid pension scheme, with a defined benefit element, enters the PPF. 
 The clause enables the provisions in schedule 7 to be considered and applied in order to calculate PPF compensation entitlement. Without the clause, PPF compensation could not be paid to any member of an eligible scheme that had been taken over by the PPF. 
 It will be more helpful if some of the issues that were raised by the hon. Member for Northavon are discussed at the relevant time—when we discuss the schedule. I do not think that there is a simple one-line answer to his question, but the broad one is that on PPF compensation we are going for a simple, broad-brush approach whereby existing scheme pensioners are paid 100 per cent. of their pension rights and other scheme members are paid 90 per cent. I concede—though I make no apology for this—that from time to time we shall examine the specifics of the scheme. 
 On the subject of partners, when, sadly, a scheme member has died and a partner who is not married is receiving benefit, she or he will continue to do so; it seemed right not to interfere with an existing arrangement. Some characteristics are more scheme-specific, but broadly speaking we are not seeking to replicate every last detail of the rights under a scheme. We are going for a broader-brush approach. That is equitable, and we also think that such a system is simpler to administer. Wherever possible, we are going for simplicity.

Nigel Waterson: I urge the Minister not to be too broad-brush, because we must remind those who are following the shaping of the Bill that there is a cap, and the board is given a power to reduce benefits. Leaving aside the issue of the 90 per cent./100 per cent. distinction, there is also the question of the 1997 cut-off. Anyone who thinks that the Bill will guarantee their pension, full stop, in a broad-brush way has been misled.

Malcolm Wicks: Yes, but I would prefer to deal with those issues when we get to the relevant moment. Those who are concerned about their pension rights being guaranteed stand more chance of that if the Bill receives Royal Assent than they would if we took the advice of those who declined to give it a Second Reading.
 Question put and agreed to. 
 Clause 124 ordered to stand part of the Bill.

Schedule 7 - Pension compensation provisions

Nigel Waterson: I beg to move amendment No. 355, in
schedule 7, page 193, line 11, leave out from 'means' to end of line 13 and insert '90%'.

James Cran: With this it will be convenient to discuss the following:
 Amendment No. 417, in 
schedule 7, page 193, line 11, leave out from 'means' to '100%' in line 13.
 Amendment No. 356, in 
schedule 7, page 193, line 24, leave out sub-paragraph (7).
 Government amendment No. 478. 
 Amendment No. 418, in 
schedule 7, page 200, line 11, leave out '90%' and insert '100%'.
 Amendment No. 419, in 
schedule 7, page 201, line 10, leave out '90%' and insert '100%'.
 Government amendment No. 480. 
 Amendment No. 420, in 
schedule 7, page 203, line 4, leave out '90%' and insert '100%'.

Nigel Waterson: Amendments No. 355 and No. 356 are the only ones in the group that were tabled by our party, but it may help if at the same time as discussing our amendments, I make some comments on the others.
 The amendments all represent slightly different ways of coming at the same issue. Ours are probing amendments, designed to point out the slightly surprising distinction—I am not sure whether the hon. Member for Northavon used that word, but I think I understood what he was getting at—between giving only 90 per cent. compensation to those under retirement age, and giving 100 per cent. compensation to those who have reached normal pension age. That is almost an echo of our current difficulties with the priority order, albeit in a much more modest way. 
 The hon. Gentleman talked about a philosophical issue. I do not want to follow him too far down that route, but the question of why there should be such a 
 cliff edge—to borrow the phrase use the National Association of Pension Funds—is almost a philosophical one. The NAPF bluntly says that it would like the cliff edge to be removed. Its perfectly legitimate position is that pensioners and non-pensioners alike should get 90 per cent. of their entitlement, up to a cap of £25,000 a year. It also has something to say about indexation and valuation; we will come to that under a different set of amendments. 
 NAPF has a point: it is difficult to see why there should be a distinction. I suppose that the reason for trying to level down to 90 per cent. could in part be a feeling that a 100 per cent. guarantee may be inappropriate in the circumstances. However, as I have pointed out, the Government's proposals are far from being a complete guarantee of people's pensions. I understand why the Minister is being ''broad-brush'', to use his phrase, but it is important that we do not allow people to go away with the idea that once the PPF has been set up, their pensions are fully guaranteed for good and all, because they certainly are not. There is a range of reasons for that, and the distinction between 90 per cent. and 100 per cent. is one of them. 
 It is interesting to see that the fact sheet produced for our deliberations makes no such extravagant claim for the PPF. It says: 
''For the first time ever, individuals in defined benefit schemes based in the UK can rest assured they will always receive a meaningful pension, even if their company goes bust and leaves the pension scheme underfunded.''
 That is not, I think, overselling the proposals in this part of the Bill, but people should be clearly aware that, although the PPF does of course provide a welcome safety net, it is only a partial safety net, and it certainly will not guarantee in full the pension rights that people may have built up over a great many years. 
 I think that we all have the Age Concern briefing, and I suspect that we will hear a bit more about that in a moment. It covers the issue from a different angle; the amendments that it suggests would level up the percentage to 100 per cent. for everyone in the scheme. It is difficult to disagree with that logic, and I am sure that we will hear it deployed in support of other amendments, too. Why should there be a distinction between the two groups of people simply because one group has retired and the other has not? 
 Age Concern says that it has worries about the amount of pension entitlement that people will receive under the new system. It says: 
''We believe that the proposed Pension Protection Fund . . . benefits are not generous. In fact the actuaries Lane Cark & Peacock and the Occupational Pensioners Alliance both estimate that some pensioners may receive only 70 per cent. to 80 per cent. of their total pension promise under the PPF.''
 We will certainly come back to the issue of the April 1997 cut-off date. Age Concern goes on to say: 
''We have particular concerns about the difference in pension entitlements granted by the Bill for those under a company's normal retirement age and those above it. Pensioners under normal retirement age, who may have been given little choice in taking early retirement, are therefore likely to see their pensions cut''—
 hence Age Concern's amendments. 
 As I said, ours are only probing amendments; however, the same logic applies to the amendments that Age Concern rightly inspired. It seems odd that there should be a distinction between those receiving 90 per cent. and those receiving 100 per cent. I will allow those who are to speak to what are, in effect, Age Concern amendments to make more of the organisation's briefing and to say more about the logic behind those amendments. 
 The bottom line is the same for both sets of amendments: why is there that slightly odd distinction? What is the logic of it, and what is the fairness that is said to be behind it?

Steve Webb: The hon. Gentleman has already observed that the level of cover is not all that good anyway. People who have already retired get 100 per cent. of something, but that something, for example, is not indexed. Having recognised and acknowledged that, he then wants to cut back further through the amendment, presumably to keep the levy down. Is he not worried that on one hand he says that the protection is not as good as it looks anyway, and on the other he moves an amendment to cut it further? Is he not worried that that would undermine the whole scheme?

Nigel Waterson: I do not think that the hon. Gentleman's intervention is unfair, or designed to be so. However, I really hope that, when the Bill emerges from this Committee, the scheme will work. Given the eloquent way in which hon. Members such as the hon. Member for Cardiff, West and others have described the problems of those who have already lost out because of the use of words such as ''guarantee'' in the past, it would be extraordinarily unfair and inappropriate if the Bill ended up sending people the message that they are getting more than they are.
 There is a real danger—I thought this before I saw the comments of some leading pension lawyers—that the fund will get into trouble very early on, largely because of the way in which it has been set up. Later we shall discuss the issue of the levy in much more detail; I am sure that you are looking forward to that, Mr. Cran. There will be a temptation to cut the benefits, because that would be the only way out. The Government have said that they are not going to back the fund. The fund will have claims on it and limited resources because of the reduced flat-rate levy in the early years. It will have little choice but to cut benefits. I would prefer that the Bill progressed on an honest rather than a false prospectus. 
 For the benefit of the hon. Member for Northavon, I want to clarify a point that I made earlier. My amendment is really a probing amendment, as I am sure the other amendments are. I can see the argument for levelling up as well; I just do not see the reason for one figure of 100 per cent. and one of 90 per cent. In fairness, I think that the hon. Gentleman made a similar point. 
 Finally, I want to return to the heart of what we are offering people in the Bill. The Minister is famously on record as saying that it is not an insurance scheme and not a pension scheme. That leaves the question—
 answers on a postcard, please—as to what it actually is. 
 I do not know whether the Minister ever reads the briefings that are sent out. Due to the European dimension of the Allied Steel and Wire claim and others, I received a briefing via UKRep, our Government's representative in Brussels. It has an interesting note about the pension protection fund. The briefing ends with the immortal lines: 
''The PPF, however, is an insurance scheme and no insurance scheme can cover against events that have already happened.''
 There is still a question mark hanging in the air about what this animal is. 
 Amendment No. 355 is a probing amendment. There is a lot of force in the other amendments, which may have been inspired by Age Concern; they make a lot of sense. However, I see no sense in making the arbitrary distinction of 90 per cent. and 100 per cent., depending on whether a person has retired or not.

Bill Tynan: I begin by clarifying the situation as regards Age Concern. I have had discussions with Amicus, of which I am a member, about the amendment that stands in my name and that of my hon. Friend the Member for Glasgow, Anniesland (John Robertson). I had much pleasure in tabling the amendment.
 Age Concern certainly supports the amendments, but they are probing amendments. We have to remember that the full intention of the fund is to give confidence as regards people who may find that they lose their pensions. I would start from the basis that we are creating confidence by establishing the fund in the right vein. It would be abhorrent if we reduced the pension of existing pensioners from 100 per cent. to 90 per cent., so I would dismiss amendment No. 355, which was moved by the hon. Member for Eastbourne. 
 Obviously, compensation is payable under schedule 7. The schedule determines the formula, but I want to examine the general principle behind it—that compensation for pensions in payment at present is 100 per cent. of the pension due under the scheme while that for the other pensions suggested in the Bill is 90 per cent. Nowhere in the explanatory notes, in the Minister's contribution on Second Reading or on the DWP website is there an explanation of why we should have the 90 per cent. target. I suspect that it is based primarily on protections in other financial compensation schemes, but I would like to hear how the Minister sees the situation. My first question, therefore, is why 90 per cent. was selected rather than 100 per cent. My second question is what the cost difference to the PPF would be if the levy were set at 100 per cent. That is an important point. Is it a matter of funding, or could funds not support such a provision? 
 Another point that must be raised relates to the guaranteed minimum pension and the state second pension. Will those benefits be protected at 100 per cent. under the PPF? There is concern that payments under the state second pension and the guaranteed 
 minimum pension could be reduced because they would be calculated at the 90 per cent. rate and would lose their value. What knock-on effect would that have on other pension benefits? 
 In moving an amendment to change the rate from 90 to 100 per cent., I understand that existing pensioners receive 100 per cent. If we really want to restore confidence in the fund so that it is generally accepted among those who are concerned about losing their pensions, we should look at 100 per cent. 
 I am looking for the Minister to tell me how he sees the present situation. We could have a tiered system of compensation that is based on the fact that it is normally poorer people who build up a guaranteed minimum pension or a state second pension. We could introduce a tiered system for pension schemes, with people on different levels—say, £10,000, £15,000 or £20,000. We could then build the system up on that basis. Of course, 90 per cent. of £30,000 or £35,000 could be acceptable, but setting compensation at 90 per cent. of the poorest people's pensions could have a dramatic effect on those individuals. 
 The amendments are intended to probe different issues, and when the Minister responds, we shall know where we go.

Steve Webb: This is obviously a very important set of amendments, and Government amendments dealing with the definition of compensation will be moved in a moment. However, there is clearly an issue about why the levels have been set at 90 per cent. and 100 per cent. and why they are not the same. If there should be only one level, what should it be?
 At first sight, one would imagine that compensation for people who have not reached the scheme's pension age might reasonably be lower, because, potentially, they will still have time to do something about it; that would be the philosophical argument. Once people have retired and passed pension age, however, it is unrealistic to think that they can save; potentially, they will have accrued all their pension. They may, however, be in their 40s when their company goes to the wall. Only the other day, I came across a constituent who worked for the Lister Petter Group, which will become a household name like ASW. It is based in Stroud, in the neighbouring constituency to mine. My constituent told me that he had lost out, but when I asked him about his circumstances, it turned out that he was in his mid-40s. Clearly, what had happened was important to him, but he told me that it was less important to him than it is to others, because he still had time to make pension savings. In that sense, the fact that he might have got 90 per cent. rather than 100 per cent. compensation if the scheme had been up and running would have been less significant for him than for a retired scheme member. However, the 90 per cent. makes no distinction between those who are on the brink of retirement and those who are 21, so I do not think that the argument stands up. Unless the scheme makes a distinction between those two different cases, the worker aged 64 or 59 who is below the normal scheme pension and but for a year will have received 100 per cent. will receive real rough justice. That 
 worker will be treated identically to the 21-year-old, who will have decades to sort out their pensions. 
 The Government's proposals are analogous to the priority order issue. The problem there was a lack of data: the relevant distinction could not be made because the scheme's records were not good enough. However, we are talking about a scheme that will apply in the future, in a world where the regulator will require schemes to have proper information about their members. Such a distinction might therefore be made. I should be interested to hear the Minister's comments about that. In other words, there is a stronger case for having a slightly lower compensation level, perhaps so as to afford something more generous for retired members, if a distinction is made according to how long people had served in the scheme. As far as I can see, however, the Government have no intention of doing that, so there is no argument for a lower compensation level for those below pension age. The provisions are too rough and ready and fail to discriminate between those who literally have a few months to sort out the problem and those who have 40 years in which to do so. That is unacceptable. 
 The question then is: if there is to be a level of support, what should it be? In a sense, any decision is arbitrary, because 100 per cent. does not mean 100 per cent., as we have discussed; it means 100 per cent. of benefits defined in a particular way. Because of inflation protection rules and so on, that may still end up as less than the pension that one would have received if one had stayed in the scheme. The numbers do not quite mean what they sound as though they mean. Clearly, one would prefer to level up, as suggested by amendment No. 417, which the hon. Member for Hamilton, South (Mr. Tynan) tabled. The better the protection, the better for everyone. 
 The hon. Member for Eastbourne accepted the latter argument, but said that if the scheme were in a mess, the proposal would worsen it by placing more of a burden on it. My answer is that we should set up the scheme properly. Let us not water down the benefits. If we are going to set up the thing, let us do so properly—in my view, we should underwrite it, in case the worst happens. Let us not approach some of the fears that have been expressed by immediately eroding a new protection scheme. That is a dangerous road to go down. 
 Funnily enough, 100 per cent. is psychological. There is a difference between 100 per cent. and 90 per cent. If a future Government went from 90 per cent. to 87 per cent., it would be much harder to argue that there had been a breach in principle. However, if the scheme said 100 per cent.—of something quite specific, but still full protection on a particular definition—subsequent Governments would, in my judgment, find it much harder to chip away at it. That is an argument for levelling at 100 per cent., not 90 per cent. The scheme would be more robust in the face of future Governments, even those perhaps less benign than this Government. One would prefer legislation to be resistant to Governments who might be less sympathetic—[Interruption.] Obviously I do not mean Governments of my own party—rather, those of the Conservative party. 
 The hon. Member for Hamilton, South raised a couple of important points. I want to confirm that I understand them. His first question is what difference it would make if the scheme were 100 per cent. levy protection, not 90 per cent. Let us suppose that the cost of the scheme was half on the retireds and half on those under pension age, and that all we were doing was knocking 10 per cent. off. According to the back of my envelope, that would suggest 5 per cent. on the levy, give or take. [Interruption.] It is quite crowded on the back of my envelope. That is a fairly small difference. Given the advantage of telling people who have not yet reached pension age that their pensions are protected on a particular definition, that is a pretty small margin to worry about. If the numbers were much bigger than that, we would have to consider the matter. However, my sense is that the cost is not huge. The hon. Gentleman rightly asked the Minister to give us the figure, but I do not know whether he can. 
 The hon. Member for Hamilton, South also raised the important issue of the interaction of occupational schemes and state pension rights. I come at the issue from a slightly different angle. Some of those schemes will have contracted out of second pension provision—I am not sure, but this might be a different point from the hon. Gentleman's. In return for contracting out, a promise will have been made to deliver scheme benefits equivalent to the state scheme. In return for a rebate from national insurance contributions, a certain pattern of scheme benefits will be promised. One feature of those scheme benefits, for example, is that they will be fully indexed. The PPF benefits will not be paid on the same basis. Does the 90 per cent. figure mean that the workers who are in contracted-out schemes will have been expecting a certain level of benefits, and the PPF will not guarantee the benefits that they would have received in the thing that replaces the state scheme? I know that that is slightly garbled. Is there an issue about contracting out, GMPs and so on? What is the difference between schemes that are contracted out and not contracted out in the way that the PPF interacts with them? 
 The key point for me is that although one can see a general argument for a differential approach, in the sense that it is too late for people who are retired to do anything about it, in practice many of those who will be affected by these wind-ups also cannot do anything about it. To tell them, arbitrarily, that the scheme went to the wall six months before they were a pensioner—not six months afterwards—does not affect the fact that they cannot do anything about it. The income for the rest of their lives is wholly dependent on these arrangements. The distinction cannot be justified, because the 90 per cent. figure makes no distinction between those people and young workers who could do something about it. A levelling is required. To make the measure future-proof, provided that it is affordable, 100 per cent. would be better than 90 per cent. 
 If the argument is that we must try to keep the levy down as much as possible, there are other ways of doing that than to go for 90 per cent. The £25,000 cap is another way to keep the costs down. For example, if 
 we think that the total levy has to be a certain figure and we want 100 per cent. rather than 90 per cent., the cap could be lower. There are different parameters in the scheme. Even if the Minister said, ''We have pushed the levy as far as we can go'', there is still a case for the 100 per cent. figure, but with a lower cap. Why did the Government reject that approach?

Malcolm Wicks: I am grateful to my hon. Friends and other Members for raising these issues. In many respects I have found this a rather encouraging debate because, although the provisions are subject to the will of Parliament, the Committee is beginning to take it for granted that one day soon there will be a pension protection fund. Having established the fund, we can then discuss details. I do not mean to be dismissive—I mean that we can discuss important characteristics of the fund. I am reminded of debates about what the level of the minimum wage should be. At least we now have a minimum wage. No doubt, we shall hear many suggestions this morning and in later debates as to how the PPF could supposedly be improved, including suggestions from some people who opposed the original proposition and some who would never have thought of it. In many ways, that is progress.
 When devising the PPF policy, we needed to balance a number of competing factors, such as how best to ensure that individuals received in a fair and transparent manner compensation close to the pension that they were expecting, thus protecting their expected living standards, while minimising costs on employers and limiting both the potential for abuse and unwanted behavioural consequences—the concern about moral hazard, to which I will return. The balancing act is not easy, but the solution that is advanced in the Bill is broadly the right one. I say ''broadly'' because no one can argue with 100 per cent. conviction about the odd percentage point. 
 A key feature is that the measure will provide the reassurance to some 10 million members or more of pension schemes that they can continue paying into their company scheme safe in the knowledge that they are likely to have a secure retirement, even if their company goes bust. Let us not lose sight of that or the fact that although we can argue about figures of 100 per cent., 95 per cent. or 90 per cent., if we had proposed 100 per cent. some lobbies would have suggested 110 per cent., hence the nature of these debates. We can argue about this, but let us always remember that in discussing the virtues of 90 per cent. or 100 per cent., we are confronting the current reality that some people are facing a figure of 20, 30 or 40 per cent. when their company goes insolvent, hence the importance of the protection fund.

Steve Webb: The Minister is making helpful contextual remarks, but can he clarify the figure of 10 million? The scope of the PPF covers private sector defined hybrid benefit schemes. Can he confirm whether there are 10 million workers in private sector defined benefit schemes?

Malcolm Wicks: There are 10 million scheme members of different kinds. On Second Reading, I cited up to 15 million but added the important
 qualification that some of those individuals in those 15 million schemes might be in more than one scheme. That is why I am referring to the more modest figure of 10 million or so scheme members. I shall write to the hon. Gentleman on that point.
 Amendments Nos. 417 to 420 are designed to ensure that everyone receives 100 per cent. compensation. Using the word ''compensation'' reminds me of the question that the hon. Member for Eastbourne asked, about what the PPF is if it is not an insurance scheme or a pension scheme. We discussed that earlier. It is perfectly reasonable that in conversation in this Committee and the House we use words such as insurance and pensions in the sense that most of our constituents would understand their English usage. Clever people from outside may say, ''Ah, but the PPF is not, strictly speaking, an insurance fund or a pension scheme,'' and of course they are right. We are inventing something that is unique to this country—a pension protection fund. We do not yet have one, and it is a compensation scheme. However, in terms of English usage, it has insurance elements and it is about protecting people's pensions. Only the nit-pickers would want to go on about that; I give way.

Nigel Waterson: The Minister cannot patronise his way out of this corner. The clever people whom he talks about are those who already make a profession of ensuring that people's pensions promises are met. They are deeply concerned that the fund will not work. They are not nit-picking; they are saying that if it is an insurance scheme, certain rules and regulations apply, particularly about investments; if it is a pension scheme, different rules apply. If the Government are persisting with saying that the PPF is neither, which set of rules applies?

Malcolm Wicks: It is in the Bill and will be in regulation what the PPF is doing. We are discussing whether non-pensioner scheme members should have pension rights of 100 per cent. or 90 per cent. Those are the details under discussion. The PPF is a unique institution—I use that phrase properly, certainly on this occasion—as we do not yet have one in the United Kingdom. It is a compensation scheme to ensure people that their pension rights will be safeguarded. Exactly what their pension rights are, and whether they are high enough and so on, is something that we are discussing. At least the Bill means that we can discuss those matters.
 Let me explain why we do not favour paying everyone 100 per cent. In an ideal world we would have liked to pay everybody exactly what they were expecting from their scheme, but sadly we cannot do that. In the real world, employers have to bear the cost of the PPF, and there are moral hazard issues, which we would be foolish to ignore. 
 On cost, I am advised that levelling up to 100 per cent. for everyone could add an extra £100 million to the levy—we will consider that figure again and, if I need to add any details or qualifications, I shall do so in writing. We have to get a balance between providing answers quickly and considering questions carefully.

Nigel Waterson: With all due respect, the Minister speaks as if this had suddenly been sprung on him this morning. He says that the business plan is broadly right, but why does he think that? These matters have never been discussed until now, and he will have to write to the hon. Member for Northavon to deal with this rather simple issue. The difference in cost must have been considered; otherwise, who is in charge of the rattling train?

Malcolm Wicks: Rightly or wrongly, I did not have the figure of £100 million in my head. I knew that, by definition, it would be significant, but I thought it helpful to take advice, as one does in the strange way of Committees. One day we will need to reform the Committee process so that the expert judgments of officials and others can be brought to bear. That is another matter, however, and relates to the modernisation of Parliament.
 I was advised that the figure was £100 million, and sought to be helpful by citing it. I will have to write to the hon. Gentleman about exactly how it was calculated, if that seems sensible. I will try to keep being helpful to the hon. Member for Eastbourne, but if he is inconsiderate every time I do so, I might have to change my mind as we approach the Easter recess.

Steve Webb: I want to confirm that I understand what the Minister is saying. The backs of my envelopes are not the most reliable places for writing things down, but I understand him to be saying that the figure is £100 million a year, because we are adding a third to the cost of the scheme, which is £300 million a year. However, all we are doing is adding a ninth to the benefits of a percentage of the scheme to the scheme member, so how can that add a third to the cost?

Malcolm Wicks: That is our estimate on the basis of a levy a year or so into the scheme of £380 million, but I will write to the hon. Member for Northavon. When members of the Committee have a whip-round to buy an Easter egg for the hon. Gentleman, we shall put it in a very large brown envelope so that he can entertain us even more with his detailed questions. No doubt, a draft Liberal Democrat Budget could also be thrown in for free.

Steve Webb: With sweeties.

Malcolm Wicks: A sweetener, yes.
 To keep costs down, we have deliberately kept the compensation arrangements as simple as possible by using a combination of the essential scheme rules and standardised PPF rules. This ''no-frills'' approach controls costs and is relatively transparent to individuals, which is important. Costs fall on employers, and the PPF design needs to be proportionate so that costs remain reasonable and sustainable. We are very much alive to the point that excessive costs could drive employers to close their schemes, which is not what we want. 
 I have said several times that it is very important that while we are introducing new security for individuals we are not naive and innocent about the costs of the schemes to employers. I do not regret this morning's debate about increasing the costs; it is an 
 important debate. Another time, we might have a debate about concerns that there are too many burdens on business as a result of the PPF. We seek to get the balance right.

Bill Tynan: I have a different perspective. I hope that my hon. Friend the Minister will write to me in response to my question about the initial cost. If the figure is £100 million, will the Minister say how much the levy would need to be increased to the employer in order to pay it? This is an important aspect. I recognise that we do not want to make it difficult for companies to set up their schemes, but we should fund the PPF properly. If we fund it properly, 100 per cent. is not a major problem. The amendment is probing, and I seek information on that basis.

Malcolm Wicks: Perhaps I can go into detail in this increasingly long letter, but I emphasise that our estimates suggest that the overall levy to employers would increase by £100 million. I believe that the hon. Member for Northavon is asking about the cost per scheme member, which we will think about. I promise to sit down before Easter to write Committee members a letter—[Interruption.]—I will not make believe that it came from me: I will write it, although I might need advice from my officials.
 The cost issue is important, but the greatest risk to the pension protection fund is, without question, moral hazard—that those with the ability to influence the way in which a pension scheme is run will take less care than they otherwise would because of the new PPF. Scheme decision makers might deliberately undertake certain activities or fail to take action if they know that the PPF will step in 100 per cent. They may make risky investment decisions or not adequately fund their schemes, especially if their employer is in difficulty and they have to make hard choices about where to put the money. Also, others with influence may be less inclined to intervene if they, or their members, will not lose out. We are concerned about moral hazard.

George Osborne: The Minister is right to talk about the risks of moral hazard and the burdens on employers but, as he seems to have moved on from the issue of differing levels, may I ask why the Government have decided to pay those below the pension age a different level to that paid to those over the pension age? They could have paid both of those groups 90 per cent., so why the philosophical distinction—to use the words of the hon. Member for Northavon? Why has that been enshrined? Did they consider setting a lower than 100 per cent. figure for all scheme members, whether pensioners or not?

Malcolm Wicks: I do not think that there is a philosophical argument; it comes down to pragmatics. Existing company pensioners have retired and generally will not become economically active again. They may have been living on their pensions for several years, and their expectations are based on that. It would be unjust suddenly to cut their pensions, which is what would be required to do what the hon. Gentleman suggests.
 Scheme members are in a different position. I thought that I was addressing that issue when discussing moral hazard. We believe that key decision makers in companies that are at risk, which may survive only if certain decisions are taken, might not go about their duties as responsibly if they think that they can get 100 per cent. of pension rights, albeit up to a cap, as they would if they thought, ''Well, I'm not going to get 100 per cent., it is 90 per cent.; we'd better take some proper decisions about the future of this company.'' Those are our concerns. Does the hon. Gentleman want to respond to that?

George Osborne: Again, the Minister is right to talk about justice for those who are on a fixed pension, especially those who have been on it for some time, but it is rough justice for those who are 63 or 64 and, perhaps, a few months from retirement. They may be ordinary employees of the company, who are not involved in key decisions about its financial future and on whom there is no incentive to manage the company properly in the way that the Minister described. Does he accept that those different levels of compensation create an element of rough justice, and a cliff-edge approach, which means that people who happen to be a few months off retirement will get less?

Malcolm Wicks: I had always assumed that, geographically, the hon. Member for Eastbourne was the expert on cliff edges.
 Seriously, the answer is yes, I do accept that, but, to use a well-known argument, a balance must be struck in social security. On one hand there are those who seek simplicity and wax eloquent about its joys, but who in their next speech talk about rough justice as a result of that simplicity; on the other, there are people who talk about the importance in social security of understanding each and every nuance and individual, but in their next speech attack the complexity that results. That is where we are on this subject. 
 In terms of the famous cliff edge, I can see the letters coming in now—and I understand why—from people close to retirement age and to the 100 per cent. I hope that when they write those letters to the then Minister with responsibility for pensions they will reflect that if we had not got the PPF the figure might have been 30 per cent. That is the alternative. I hope that we shall all keep reminding ourselves of that. We might think that 90 per cent. or 100 per cent. is right, but both of them are better than 30 per cent. 
Mr. Webb rose—

Malcolm Wicks: The hon. Gentleman is going to tell me what the arithmetic shows.

Steve Webb: I am not, Mr. Cran.
 The Minister's central argument is about moral hazard; we need to have less than full protection because if we had full protection people would misbehave. There are two objections to that. First, the key decision makers will almost certainly—nine times out of 10—be capped. The Minister hinted at that. They will already not have full pension rights. The operation of the cap means that there is a limit on 
 the moral hazard of those people, even if they still have anything to do with the works pension scheme. Secondly, why is the moral hazard different for scheme members who are active and for members who are retired? The Minister is saying that because of moral hazard we have to undermine the workers' benefits. Should we not undermine everybody's benefits if we are worried about moral hazard?

Malcolm Wicks: The PPF is about restoring benefits; it increases them from what they would have been if it had not existed.
 Some of the key decision makers might be in small companies, so they might come under the cap and expect a good pension of £24,000 or whatever. Some key decision makers might be less responsible in the decisions they make about their company's future and finances if they know that at the end of the day they will be okay because they will still get 100 per cent. of their pension. However, the existing company pensioners are probably no longer key decision makers in their company. The hon. Gentleman seems to find that answer strange, but I think that it is probably true that someone who retired from their company several years before is no longer a key decision maker in that company, whereas the director of finance of a small or medium-sized company is a key decision maker, and he may be more careful about the decisions he makes if he thinks that he might not get 100 per cent. of his pension. 
 Does the hon. Gentleman want to come back on that? I thought that I had made a simple point, but I obviously have not explained it properly.

Steve Webb: We are talking about the finance director of a company that might employ many people and have many retired members, and the Minister is focusing his entire moral hazard argument on the individual incentive of that individual finance director for his individual pension, which nine times out of 10 will be capped anyway. Therefore, he has far more incentive to worry about the overall health of the company, in which he probably has share option dividends or something similar. Because of the cap—the moral hazard argument—he already knows that he will not get a full pension if things go wrong. I find the argument confusing that a distinction must be made between all the other active and retired members because of the moral hazard on that individual.

Malcolm Wicks: I think that I understand the gist of that, and I have conceded without apology that there are elements of rough justice. However, the rough justice relates to 10 percentage points—or do I mean 10 per cent?

Steve Webb: Both.

Malcolm Wicks: Yes, it is both this time, because we are talking about 100, are we not? Very good; I can see why the hon. Gentleman made it to professorial level at university and I did not. That is the difference we are talking about. This is roughish justice, to coin a phrase. I take the point that some of the people caught by rough justice—meaning, I repeat, that they will get 90 per cent. rather than the 30 per cent. that they would have got without the PPF, so it is not that rough—will not be key decision makers. However,
 some of them will be key decision makers. The hon. Gentleman must not make the mistake of assuming that we are always talking about large and grand companies in which everyone, including the director of finance, will be on huge pensions. Some companies will be more modest, and people may be looking forward to good but not astronomical pensions.
 We have several strategies to mitigate moral hazard, such as the risk-based pension protection levy to encourage schemes to fund well. We will also be introducing a range of further proposals to combat moral hazard. However, we strongly believe that the strategies on their own will not provide sufficient protection against moral hazard or cost escalation; that will rather come from providing less than full protection to a major proportion of scheme members by limiting their compensation to 90 per cent. and capping their benefits. 
Mr. Osborne rose—

Malcolm Wicks: I am happy to give way, but I am desperate to come to the end of my six-page speech before Easter.

George Osborne: We have plenty of time for the Minister to reach the end of his speech. He mentioned in passing that he would be introducing other measures to help with the moral hazard problem. What does he mean by that?

Malcolm Wicks: All will become clear when we introduce one or two new clauses after Easter. I have said that the very nature of the risk-based levy is concerned with moral hazard.
 We believe that the 90 per cent. and the cap addresses moral hazard because it may directly impact on the compensation payable to key decision makers and key influencers, so they will be personally better off staying out of the PPF than staying in it. As I have argued, that should encourage responsible behaviour in relation to the scheme. In addition to helping to fight moral hazard, the 90 per cent. also helps to control costs. 
 Why pay 100 per cent. PPF compensation to pensioners? I have given the reasons why that seems to be sensible. Arguments for less than full protection for those over normal pension age are less relevant to the issues surrounding moral hazard. 
 Before I close, I want to make it clear that Government amendments Nos. 478 and 480 will make minor drafting changes. They tidy up the precise wording for the calculation of the compensation in respect of lump sums for deferred members. That will not affect their entitlement, but it will make the wording consistent with other parts of the legislation. 
 Finally, I shall respond to the hon. Member for Northavon, who said that the roughest justice of all would be for someone who was approaching retirement age. I conceded that that did sound rough. However, the 64-year-old will have had more years in work to accumulate pension rights than the 24-year-old. Although they may not be in a position to make up the 10 per cent. difference, their pension rights—all other things being equal, which they will 
 not always be—will be far more than those of a 26-year-old or even a 56-year-old. On that basis, I hope that the hon. Gentlemen will consider withdrawing their amendment.

James Cran: I have almost forgotten who moved the amendment. I think that it was you, Mr. Waterson.

Nigel Waterson: Indeed, Mr. Cran—and the next election will be here sooner than you think.
 I will, of course, ask leave of the Committee to withdraw the amendment, but these amendments have revealed a sparsity of thought on the part of the ministerial team that is a little worrying. Themes such as rough justice can be repeated too often, but it strikes me that some rough thinking has been involved here. The distinction between the 90 per cent. and 100 per cent. figures is a central part of the Bill and was ramped up as such long before the Bill ever saw the light of day. However, it is almost as though we have sprung it on the Minister this morning in a sort of ambush, and he has to write to us on one or two of the key issues. Of course, we always enjoy receiving his letters and we await them with interest. 
 In a sense, there is an unreal element to this discussion because it is not exactly about what people are going to get. They may be subject to the cap or the lack of indexation, depending on the relevant dates, and their benefits may be reduced across the board because the fund does not have the money to cover such levels of compensation.

Kevin Brennan: Is the hon. Gentleman in favour of the cap?

George Osborne: We are going on to that.

Nigel Waterson: I will deal with that in more detail shortly.

David Cairns: He'll write to you.

Nigel Waterson: It is all very well making jokes from a sedentary position; that is the main purpose of a Parliamentary Private Secretary, as I can testify. However, Opposition Members are a bit of a ''Mom and Pop'' operation. The Minister has vast resources at his beck and call, yet does not seem to know the answer to basic and obvious questions.
 Yes, of course there should be cap, but there is scope for debate on the level at which it is set. The point that I was trying to make—possibly laboriously—is that one has to look not at the cap, or at the figure of 90 per cent. or 100 per cent., but at the interaction of the various factors, which, as Committee members have pointed out, we will deal with in more detail during our discussion of indexation. The promise being made is for a figure more like 70 or 80 per cent. for many pensioners. 
 I confess to being as bemused as the hon. Member for Northavon by the moral hazard argument. I am delighted that the Government have woken up to the real dangers of moral hazards, about which the Americans will have been telling the Minister's officials for a long time. However, I do not understand why the argument should not apply to 
 the 100 per cent. We are not simply talking about key decision makers; we are talking about the people who are running the pension schemes and who may well take an equally loose attitude to investment decisions and so on for people who will be retired shortly or in the near future. All these decisions have a long-term effect. 
 I will have to go back and check my notes from my recent meeting with the Minister to find out whether he flagged up further amendments on moral hazard as being on the Government's shopping list of major topics to which they will return. Perhaps my memory is at fault. However, if that shopping list is being added to as we speak, I would repeat in spades everything that I have said so far about the unacceptability of changing the shape of the Bill significantly in Committee stage or beyond.

Bill Tynan: Some of my amendments are in this group and I want to press the Minister a little further on the selection of the 90 per cent. level. He said that a company could have risky investments and there would be a moral hazard. I would expect the actuaries and trustees of any pension scheme to ensure that the investments make it sound. It is hard to marry that with a situation in which moving to 100 per cent. would lead to people taking a gamble with the pension scheme of a company. I have listened to what the Minister said and may come back to that on Report.
 Will the guaranteed minimum pension and the second state pension be guaranteed in full or subject to the 90 per cent. figure? I raised that question in my original contribution.

Malcolm Wicks: Guaranteed minimum pensions will not be considered separate from the rest of the pension for PPF purposes. That ensures that the PPF's intention for there to be simplified rules to keep costs down for levy payers is maintained. That benefit is part of the 100 per cent. that pensioners will get. State benefits are, of course, separate and people will have them alongside their PPF pension. I can talk to my hon. Friend later about that. [Hon. Members: ''Or write to him?''] Yes.

Bill Tynan: I thank the Minister for that. I have one final question. The 100 per cent. will continue to be paid to people who have retired, which is the intention of the PPF. The suggestion is that people who have not retired will receive 90 per cent. The Minister mentioned £100 million. Will he re-examine that figure? He said that he would write to the hon. Member for Northavon and other Committee members to clarify exactly how much it would be. If he does that, I will be happy to withdraw my amendments.

James Cran: Just for the avoidance of doubt, Mr. Tynan, you will not have to withdraw your amendments. We are dealing with the lead amendment, which is Mr. Waterson's.

Nigel Waterson: I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Amendment made: No. 476, in 
schedule 7, page 193, line 19, leave out from 'if,' to end of line 23 and insert 'paragraph 32(3A) applies.'.—[Malcolm Wicks.]

Nigel Waterson: I beg to move amendment No. 357, in
schedule 7, page 193, line 31, at end insert— 
 '(7A) The Board shall have the power to review any early retirements that have taken place in the three years prior to the Pension Protection Fund assuming responsibility for that scheme and to make retrospective adjustments if it appears that inappropriate early retirements have taken place that have caused unfair advantage to certain scheme members.'.
 Hon. Members will be pleased to hear that I have a short point to make, which was raised by the National Association of Pension Funds. It thinks that the board should have a power to review retrospectively any early retirements and to make retrospective adjustments. There is a fear that sometimes what it calls ''inappropriate early retirements'' take place, which cause an unfair advantage to some scheme members and, therefore, an unfair disadvantage to the others, and that particularly generous arrangements are made that might need to be examined after the event. 
 The amendment proposes a three-year period, which strikes me as sensible. There are longer periods for such things. For example, I think that there is a seven-year retrospective period for looking into transfers of property and money for inheritance tax purposes. Three years is a practical period to be able to go back and examine arrangements. 
 As always, the caveat that if the wording is not right, the Government are welcome to improve on it applies. However, there might well be cases—I understand that there already are cases—where scheme members feel badly done by simply because a particular individual has been given a very generous package, ultimately to the detriment of the others. The amendment proposes a sensible power for the board to have in its locker.

Kevin Brennan: I have sympathy with the spirit of the amendment. Many Allied Steel and Wire members felt that some of the more senior early retirements that took place in the period leading up to when the company went into administrative receivership might have been related to insider knowledge of the company's fate, which returns us to the issue of moral hazard.
 In one way, the Bill reduces the moral hazard for people to jump ship early, perhaps to protect their pension rights. However, it balances that by putting a cap on the compensation available, which means that they still might jump ship early because they know that their pension entitlements are quite rightly capped by the PPF. I hope that the Minister will tell us that current arrangements, the Bill or other regulations contain a provision to ensure that that widely perceived potential for abuse is cauterised if the amendment would not achieve that end.

Malcolm Wicks: As we know, the schedule sets out the pension compensation provisions relating to the Bill. The amendment would enable the board to
 reconsider pensions in payment on the ground of early retirement and to make retrospective adjustments if it appears that inappropriate early retirements have taken place. We have carefully considered the ways in which we can protect the PPF from abuse by employers or trustees, who may take unfair advantage and gain access to PPF compensation. For example, PPF compensation will be subject to admissible rules. Where the effect of any changes or recent discretionary increases result in increased entitlement to PPF compensation, those changes, which were made or that took effect in the three years before the assessment date, will be disregarded. That is a very important provision, with which, I believe, the hon. Member for Eastbourne agreed.
 General early retirement does not present a problem. PPF compensation to most members who are younger than the usual pension age at the assessment date will be limited to 90 per cent. That limit aims to prevent abuse. It also guards against levy payers who subsidise the schemes and manipulate the rules to gain access to 100 per cent. PPF compensation. It is also important to ensure that members are treated fairly. For example, members who are 55, except those who retired early on the grounds of ill health, will be entitled to 90 per cent. PPF compensation, regardless of whether they are active, deferred or early retired members of the PPF. 
 It has been suggested that the schemes may enhance the levels of compensation payable to members through the PPF by awarding early retirement on the grounds of ill health—hence the amendment. We know that abuses are possible. Only the rich seem to be able to recover from Alzheimer's disease, and I remember a famous case of that. This is a highly complex subject, which we are carefully considering. I will consider further the essence of the amendment. In the meantime, however, I ask the hon. Gentleman to withdraw it.

Nigel Waterson: I am pleased to hear that the Minister is actively considering the matter. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

John Robertson: I beg to move amendment No. 421, in
schedule 7, page 194, line 7, leave out 'half' and insert 'the same proportion of'.

James Cran: With this it will be convenient to discuss the following amendments: No. 422, in
schedule 7, page 194, line 10, at end insert 
 'as the proportion of that pension which would have been payable under the rules of the scheme before the assessment date'.
 No. 423, in 
schedule 7, page 195, line 15, leave out 'half' and insert 'the same proportion of'.
 No. 424, in 
schedule 7, page 195, line 19, at end insert 
 'as the proportion of that pension which would have been payable under the rules of the scheme before the assessment date'.
 No. 425, in 
schedule 7, page 197, line 4, leave out 'half' and insert 'the same proportion of'.
 No. 426, in 
schedule 7, page 197, line 8, at end insert 
 'as the proportion of that pension which would have been payable under the rules of the scheme before the assessment date'.
 No. 427, in 
schedule 7, page 199, line 39, leave out 'half' and insert 'the same proportion of'.
 No. 428, in 
schedule 7, page 199, line 42, after 'died,', insert 
 'as the proportion of that pension which would have been payable under the rules of the scheme before the assessment date'.
 No. 429, in 
schedule 7, page 199, line 44, leave out 'half' and insert 'the same proportion of'.
 No. 430, in 
schedule 7, page 199, line 46, after 'paragraph', insert 
 'as the proportion of that pension which would have been payable under the rules of the scheme before the assessment date'.
 No. 431, in 
schedule 7, page 202, line 30, leave out 'half' and insert 'the same proportion of'.
 No. 432, in 
schedule 7, page 202, line 33, at end insert 
 'as the proportion of that pension which would have been payable under the rules of the scheme before the assessment date'.
 No. 433, in 
schedule 7, page 202, line 35, leave out 'half' and insert 'the same proportion of'.
 No. 434, in 
schedule 7, page 202, line 37, after 'paragraph 15', insert 
 'as the proportion of that pension which would have been payable under the rules of the scheme before the assessment date'.

John Robertson: The 14 amendments would ensure that the widows' and widowers' benefits paid by the PPF are the same as the widows' and widowers' benefits that the scheme would have paid. Different schemes provide greater or lesser proportions of the member's pension to a surviving spouse on the member's death. In order to contract out of the state second pension, the proportion must be greater than 50 per cent. Many schemes provide two thirds, which is the Inland Revenue maximum.
 The schedule requires the proportion to be 50 per cent. in every case. The purpose is to reinstate the proportion to two thirds if that is what the scheme would have paid. The amendment is repeated 14 times because the same issue arises 14 times in the schedule. It deals with pensioners, deferred pensions, active members, active members who die after retirement age and so on. I can imagine only that the Government have forgotten that there is a 50 per cent. and a two-thirds pension. The Minister talked of rough justice. Is it right that surviving partners are treated differently from others who are in the same sad position, but who are fortunate enough to have had a partner with a pension that did not become a PPF? It is not their fault that the company became insolvent. As my hon. Friend the Member for Hamilton, South said about the figures of 90 per cent. and 100 per cent., we need confidence in the PPF. I suggest that further cutting pensions for surviving partners does the same 
 as the reduction from 100 per cent. to 90 per cent. by bringing future confidence in the PPF into question. 
 We need to treat people the same—even-handedly—not to punish them. With 50 per cent. of a capped pension some pensioners might be forced into the poverty trap, depending on how long they had worked for the company. Fifty per cent. of 90 per cent. already brings the figure down to 45 per cent. If we reduce a two-thirds pension to 50 per cent., we shall have knocked off more money that could have been given to people who need it more than most. I should like the Minister to attend to that, and to tell us whether he thought of the idea of a two-thirds pension. Is this provision another form of the cost cutting that he mentioned earlier earlier? 
 The amendment would provide for the benefits to be determined by the rules of a particular scheme, rather than being standardised at 50 per cent. It is not fair to single out one area of benefits to be limited, when the benefits may be weaker in another area of the scheme that is not limited. Relatively few schemes depart from the 50 per cent. norm anyway, so the cost would be limited. 
 I ask the Minister to think about the amendment with a view to establishing confidence in the PPF from the beginning, and maintaining future confidence without the fear of further reductions—I shall speak about that again on a later amendment relating to the possibility of imposing further reductions. I ask the Minister to consider including provision for the two-thirds pension.

Malcolm Wicks: I thank my hon. Friend for the way in which he introduced a perfectly reasonable question. However, I think that I shall have to disappoint him, and I shall try to explain why.
 The amendments would provide for paying PPF compensation to survivors on the basis of the proportion that would have been payable under scheme rules. We feel that that would create unwanted complexity and would be onerous, as the PPF would have to check each set of scheme rules for each person to see what the proportion would have been. That would obviously increase administration costs and could therefore increase the PPF administration levy. The PPF rules are intended to be as straightforward as possible, to ensure that the PPF is both transparent and cost-effective. 
 As we have heard, the PPF will pay compensation to a surviving spouse at half the amount of the periodic compensation that the member would have been getting had he or she not died. I know that my answer will be disappointing to my hon. Friend, but I am afraid that there is no getting away from one of the factors—cost. At a time when some companies are considering the future of their final salary schemes because of their cost, I am afraid that we must be mindful of that issue. It would be absurd if establishing the finest possible PPF scheme led to a rush away from final salary schemes, so I am afraid 
 that the word ''costs'' will be repeated often during our debates. 
 There may be another consideration. In answering the hon. Member for Northavon I did not mind conceding—because it is a reality—that although the PPF pays attention to the existing scheme in some respects, the intention is nevertheless that the rules for PPF compensation should be fairly simple. However, I want to suggest to my hon. Friend the Member for Glasgow, Anniesland that, as we gather in the levy from across the pension schemes, we might be open to criticism in our handling of survivors' benefits if, because of scheme specificities, the PPF treated some survivors more generously than others, where the proportion was 50 per cent. or less. Equity across the PPF is a factor—but I appreciate that there are counter-arguments.

Steve Webb: That raises an important general point. All schemes are different, but if someone has paid into a scheme that gives generous widows' benefits, for example, that may have been the quid pro quo for, say, a lower accrual rate; there can be a mix and match. Surely no one will cry foul if the PPF pays out generous widows' benefits but a lower pension, if that is how the scheme was designed. We are not talking about people getting something for nothing, as the Minister seems to imply.

Malcolm Wicks: I hope that I put forward that last argument with suitable hesitancy, because I know that there are counter-arguments. At the end of the day, we are talking about schemes that have gone bust, and people who would be facing a very stark future if it were not for the PPF. We are not talking about schemes that have a future, or cases in which all the benefits could be paid out; otherwise the PPF would not be involved. This is our old friend rough justice again. I hope that I have explained why the Government think that 50 per cent. compensation is appropriate, and I hope that my hon. Friend the Member for Glasgow, Anniesland will consider withdrawing his amendment.

John Robertson: I hear what the Minister says. This is a probing amendment and I will withdraw it, but I find it difficult to understand why the cost of working out a pension, no matter where the scheme collapsed, would differ depending on whether compensation was always set at 50 per cent. A two-thirds pension compensation would just involve having a different percentage point on the computer. I cannot understand the costs of working out a pension differing from one pension to another, no matter what the percentage. I ask the Minister to consider that. My hon. Friend the Member for Hamilton, South and I reserve the right to return to the matter, but I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Amendment made: No. 477, in 
schedule 7, page 194, line 35, leave out from 'if' to end of line 38 and insert 'paragraph 32(3A) applies.'.—[Malcolm Wicks.]

Steve Webb: I beg to move amendment No. 406, in
schedule 7, page 197, line 8, at end insert— 
 '(3A) Regulations shall provide that such compensation shall, in prescribed circumstances, also be payable to a surviving unmarried partner of the pensioner.'.
 This is another case in which the PPF rules and the rules of the scheme might be different. Increasingly, occupational pension schemes provide, in certain circumstances, survivors' benefits not only for married spouses—widows and widowers—but for surviving unmarried partners. The Minister, in another life, had a long and distinguished career at the Family Policy Studies Centre—an organisation to whose monthly digest of research I am sure the hon. Member for Eastbourne used to subscribe. 
 One of the themes of family policy is that families are changing, and that legislation should reflect the changing patterns. We are in a new century, and we are introducing legislation that will, I hope, last us for decades to come, so it needs to fit the future, not the past. This is the prime time to frame legislation that fits the future. The Minister surely accepts that the issue of unmarried partners and their pension rights will not go away. Cohabitation rates are highest among the young, but one can speculate that nowadays, cohabiting is not simply something that young families do before they get married, and that cohabitation rates among older workers, too, are on the increase. I do not have the statistics to hand, and the Minister will perhaps correct me, but to my mind, we are not just talking about twenty-somethings living together before they get married: this is a long-term phenomenon. That will be more and more of an issue for pensions in coming decades. The question is therefore whether future pensions law should be framed exclusively around marriage, or whether it should reflect the position of unmarried partners. 
 The position of civil partners will become an issue, and a further amendment may be needed at some point to reflect their position, because I presume that the Government will want to make PPF benefits available to civil partners. Obviously, unmarried partners could be in same-sex couples or opposite-sex couples; we have not specified that. We need to define these things, but they are definable. Certain public sector schemes are already providing survivors' benefits for unmarried partners, and the best-practice private sector schemes, too, are providing such benefits. This can be done—it is not straightforward, but it can be done. The key question is whether the PPF should be doing it. 
 The Minister's objection to the hon. Member for Glasgow, Anniesland, who has just spoken about widows' benefits, was that it is expensive to provide scheme-specific replacements and mirror the exact detail of every scheme because a vast numbers of schemes are out there, and the PPF would have to find out the rules of every one. Through the amendment, my hon. Friend the Member for Chesterfield (Paul Holmes) and I are not suggesting that the PPF should provide benefits for unmarried partners if the scheme did, but not if the scheme did not. That would be one option—to mirror whatever the scheme did. However, the Minister says that that is too complicated and too difficult. 
 Amendment No. 406 would simply allow the PPF to say that one of the things that it could do was to provide survivors' benefits to unmarried partners, regardless of whether the scheme that they were in did so, just as the PPF can allow lump sum benefits even if the scheme did not include them. 
 I think that I am right to say that in some cases the PPF will go beyond the scheme. There is no iron rule and no absolute point of principle that the PPF will always provide less than, or the equal of, what the scheme did. The PPF will sometimes provide better, and in many cases it will provide differently. If there is an argument that we cannot be scheme-specific, there can be a general presumption that there will be a very small number of cases. I am keeping my envelope in my pocket at this juncture, but I suspect that the numbers are pretty small now. However, they will rise, because society is changing. 
 Are we framing a piece of legislation whereby in 2004 a Minister can say, ''That's not much of an issue; it doesn't happen much. It's just one of those bells and whistles,'' yet in 2014, the same Minister—[Interruption.] I suppose it would be a corresponding Minister by then, and that Minister would say, ''This is mainstream; it is an absolutely central benefit. We would not think of not providing benefits for widows—for the married partners of dead scheme members—and in this day and age we would not think of not providing for unmarried partners either.'' 
 I can see the argument about matching scheme-specific characteristics, and why that might be expensive. The proposition behind the amendment is to set out one of the things that the PPF does. Just as any decent pension scheme pays out for widows, albeit at a limited rate, any decent pension scheme in the future will probably pay out for unmarried partners as well. Is that not the basis on which the PPF should be structured?

Malcolm Wicks: I find this an interesting question. I am a great believer in open government, and useful discussions take place in Whitehall that I sometimes think should be shared.

George Osborne: Particularly in the immigration and nationality directorate.

Malcolm Wicks: I had better not respond to that. I, for one, am not allowed by you, Mr. Cran, to talk more generally in this Committee, and I am sure that the hon. Gentleman will be suitably disciplined.

Nigel Waterson: So much for open government; that didn't last long.

Malcolm Wicks: Let me start by stating the position and then reflecting on it. The PPF will provide survivors' benefits for unmarried partners who were entitled before the assessment date. As I understand that, if, sadly, a worker has died and the scheme recognised cohabitation and the partner has got the pension, we will not interfere, and that will continue. I am sure that everybody would think that that was right and proper, whatever side of the argument they are on with this new issue. It is entirely at the discretion of schemes to determine whether, through their scheme rules, survivors' benefits are provided to
 unmarried partners, and to determine the definition of ''unmarried partners''.
 The issues surrounding definitions are not that simple for anyone to determine, let alone schemes. If the PPF were to pay survivors' benefits to unmarried partners, it would have to check each set of rules for each person, to see what provision the scheme had made for unmarried partners. Although schemes manage to do that, the PPF would have to do it for a range of different schemes, all of which could have different rules. That could lead to inconsistent decision-making, because of the degree of discretion involved. Undertaking such investigations could also be time-consuming and costly. 
 Providing survivor's benefits to unmarried partners could also be contrary to the principle that the PPF provides standardised basic compensation that does not pretend to replicate the myriad of scheme rules. The aim is to strike a balance between providing sufficiently generous compensation and maintaining standardisation, to keep costs down for levy purposes. The PPF is based on that proposition. 
 I certainly take on board the force of what the hon. Member for Northavon said, and should like to reflect further on it. Patterns of relationships and families are changing quite rapidly. Indeed, Parliament is now discussing, perhaps in a nearby Room, the concept of civil partnerships, to give gay couples certain rights in law, and other provisions. That is the mark of how Parliament seeks to address, and perhaps to catch up with, societal change. I realise, because of my background, which the hon. Gentleman was kind enough to mention, that cohabitation among heterosexuals is more and more commonplace. Cohabitation still normally precedes marriage, but sometimes, over a longer time, it takes the place of marriage. 
 The hon. Gentleman has raised an important issue. It is important to concede that primary legislation that reflects an era—perhaps an era that is long gone—will cause difficulties for Parliament and the Government in the longer term when they seek to revisit such issues, as one suspects they will. We are now in between times. On the one hand, for reasons that I could no doubt defend, state pensions reflect the institution of marriage. On the other hand, income support rules have long reflected the reality of cohabitation. I do not support the hon. Gentleman's amendment, but I am still thinking about it. I take the point that many company pensions—indeed, the civil service and MPs' schemes too, I understand—are now addressing the issue of partnerships. 
 The hon. Gentleman has made his argument well. I shall ask him to withdraw the amendment, but I shall reflect actively with colleagues, to see whether some of the issues can be addressed, one way or another, through secondary legislation such as regulations. Without conceding that the PPF should reflect the contents of the amendment on day one, or even within the first few years, I take the issue that has been raised 
 seriously. With those assurances, I hope that the hon. Gentleman will consider withdrawing his amendment.

Steve Webb: I am heartened by the spirit in which the Minister has responded. If I had a tendency to be slightly harsh—which of course I shall not be now—I would have to conclude that in the first half of his speech he said that, in a sense, provision for surviving non-married partners was a ''bells and whistles'' scheme. In other words, the PPF is about bog standard, basic provision, and covering surviving partners is one of those nice things that can be done, but are not central. That is another way of saying that marriage counts and non-marriage does not count—that we are going to make a distinction, and that the basics of a pension scheme should cover only legal marriage.
 Yet the Minister said that his thinking, or the Department's thinking, was moving on. He made the important point that he would consider whether the objective of the amendment could be achieved through secondary legislation. That is exactly what we are trying to do through the amendment, because it begins, ''Regulations shall provide''. The point was simply to have a formula in the Bill to give the Government the power to do something about this issue when they wanted to. 
 The Minister says that we need to do that in a slightly different way; I understand that and I find it quite encouraging. However, I hope that he will ensure that by the time the Bill is enacted there will be something in there somewhere that opens the door to dealing with the issue through secondary legislation. I am heartened by the Minister's response, and I am not wedded to the particular form of words in the amendment, so I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Amendment made: No. 478, in 
schedule 7, page 200, leave out line 11 and insert— 
 '(3) The compensation is a lump sum equal to 90% of the protected amount. 
 (3A) In sub-paragraph (3) ''the protected amount'' means the aggregate of—'.—[Malcolm Wicks.]

Malcolm Wicks: I beg to move amendment No. 479, in
schedule 7, page 200, line 41, leave out '27' and insert '25'.

James Cran: With this it will be convenient to take Government amendments Nos. 481 to 485.

Malcolm Wicks: This group of Government amendments is of such great significance that we might want to discuss them during this afternoon's sitting, as well as this morning. The clocks in the Room were wound forward last night, as they should have been, which is fortunate for those of us who need a cup of coffee.
 The amendments deal with the cap on the pension protection fund compensation, and they would alter paragraphs 14, 19, 23, 25 26 and 27 of schedule 7. It is important to have a cap on the level of compensation to reduce the risk of moral hazard and control the costs of the PPF. A cap on compensation will affect only a small number of higher-paid scheme members. 
 From memory, I think that fewer than 10 per cent. might be so affected—I know that the hon. Member for Eastbourne likes to hear such figures. The cap would affect a relatively small proportion of scheme members, and would by definition focus on higher earners, who are likely to include those most able to affect the proper governance of the pension scheme. Such members may also have the greatest interest in the scheme, and in ensuring that it is adequately funded. 
 The purpose of the amendments is to introduce, instead of a cap on periodic compensation, as in paragraph 25 of the schedule, and a cap on lump sum compensation, as in paragraph 27, one cap on the aggregate periodic compensation and the annualised actuarial equivalent of the lump sum compensation. The existence of any lump sum compensation will therefore be taken into account in determining how the cap will apply to the periodic compensation, as well as how it will affect the cap on the lump sum itself. 
 People with different types of benefit from their pension scheme will be dealt with more fairly if the cap 
 works in a combined way, rather than separately, on each part of the compensation. In particular, people with entitlement to periodic compensation alone will be dealt with consistently and fairly in comparison with people who have both a pension and a lump sum. 
 Amendment No. 483 is the main amendment, and would replace both paragraph 25, which deals with the cap on periodic compensation, and paragraph 27, which deals with the cap on lump sums. It sets out the different types of compensation subject to the cap. Those include the pensions of people who are under the normal retirement age for their scheme and are not receiving an ill-health pension, but who are pensioners at the assessment date. For example, they may have taken early retirement— 
 It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order. 
 Adjourned till this day at half-past Two o'clock.